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Addressing Rising Energy Costs

Addressing Rising Energy Costs. Mark Schmidt Illinois Municipal Gas Agency Auburn, Illinois. You’ve All Read the Headlines. “Oil Prices Hit All-Time High” “Natural Gas Price Hikes Drive Heating Costs Higher” “Gasoline Prices Jump 25 Cents Overnight”.

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Addressing Rising Energy Costs

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  1. Addressing RisingEnergy Costs Mark Schmidt Illinois Municipal Gas Agency Auburn, Illinois

  2. You’ve All Read the Headlines • “Oil Prices Hit All-Time High” • “Natural Gas Price Hikes Drive Heating Costs Higher” • “Gasoline Prices Jump 25 Cents Overnight”

  3. Prices are Skyrocketing Across the Energy Sector…

  4. Prices are Skyrocketing Across the Energy Sector… CRUDE Source: Future Source

  5. Prices are Skyrocketing Across the Energy Sector… HEATING Source: Future Source

  6. Prices are Skyrocketing Across the Energy Sector… GAS Source: Future Source

  7. Prices are Skyrocketing Across the Energy Sector…GASOLINE Source: Future Source

  8. Prices are Skyrocketing Across the Energy Sector… PROPANE Source: Future Source

  9. Prices are Skyrocketing Across the Energy Sector… ELECTRIC Source: Future Source

  10. In Addition, Prices are VOLATILE! Source: NYMEX

  11. What is Causing Energy Prices to Rise?

  12. What is Causing Energy Prices to Rise? There is no one factor, but a complicated array of economic, geopolitical and climatic reasons.

  13. Increased World Energy Demand

  14. Increased World Energy Demand

  15. Increased World Energy Demand Source: BP

  16. Increased World Energy Demand Source: BP

  17. Demand / Supply Imbalances Source: BP

  18. Demand / Supply Imbalances Geopolitical Instability: • Middle East / Iran • Africa • Venezuela • Russia / Eastern Europe

  19. Demand / Supply Imbalances Source: NYMEX

  20. Demand / Supply Imbalances Source: NYMEX

  21. Climate Challenges Source: NYMEX

  22. Climate Challenges

  23. Climate Challenges Source: NYMEX

  24. Climate Challenges

  25. How Can Local Governments Deal With This Triple Threat?

  26. How Can Local Governments Deal With This Triple Threat? While the factors driving energy prices higher may be out of your control, the responses aren’t!

  27. Local Responses to High Energy Prices

  28. Local Responses to High Energy Prices • Communicate clearly and effectively. Use “inoculation theory” to your advantage.

  29. Local Responses to High Energy Prices • Communicate clearly and effectively. Use “inoculation theory” to your advantage. • Practice and promote conservation.

  30. Energy Conservation

  31. Energy Conservation

  32. Energy Conservation

  33. Energy Conservation

  34. Local Responses to High Energy Prices • Communicate clearly and effectively. Use “inoculation theory” to your advantage. • Practice and promote conservation. • Pool purchases for greater leverage in the marketplace.

  35. The IMGA Story • Created by the General Assembly in 1990.

  36. The IMGA Story • Created by the General Assembly in 1990. • Goal: To allow municipal gas utilities to pool their purchases to achieve market strength.

  37. The IMGA Story • Created by the General Assembly in 1990. • Goal: To allow municipal gas utilities to pool their purchases to achieve market strength. • Nonprofit unit of local government.

  38. The IMGA Story • Created by the General Assembly in 1990. • Goal: To allow municipal gas utilities to pool their purchases to achieve market strength. • Nonprofit unit of local government. • 3.5 bcf of gas in 2006.

  39. Local Responses to High Energy Prices • Communicate clearly and effectively. Use “inoculation theory” to your advantage. • Practice and promote conservation. • Pool purchases for greater leverage in the marketplace. • Hedge to decrease market volatility.

  40. It’s Called Risk Management • Goal: Decreased Volatility, Improved Predictability.

  41. It’s Called Risk Management • Goal: Decreased Volatility, Improved Predictability. • Futures Purchases: NG Winter Strip = $10.75/dt. Year Strip = $9.00.

  42. It’s Called Risk Management • Goal: Decreased Volatility, Improved Predictability. • Futures Purchases: NG Winter Strip = $9.75/dt. Year Strip = $9.00. • Financial Contracts: 50% Swap allows communities to set ceiling price, and ride the market down.

  43. Keys to Effective Risk Management • View risk management as an insurance policy.

  44. Keys to Effective Risk Management • View risk management as an insurance policy. • Learn as much as you can… or have a source you can trust.

  45. Keys to Effective Risk Management • View risk management as an insurance policy. • Learn as much as you can… or have a source you can trust. • Be assertive in seeking your price or deal.

  46. Keys to Effective Risk Management • View risk management as an insurance policy. • Learn as much as you can… or have a source you can trust. • Be assertive in seeking your price or deal. • Don’t seek the bottom.

  47. The Legend of Sysiphus

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